“For several years, the issue of the tax residency in a country for a specific person, relatively known or with important economic interests, was a recurring theme in the investigation, the actions and the processes involving tax agencies, courts and investigative journalism.
The concept of “tax residency” for citizens of Andorra is relatively recent, as the mandatory subjection to a general personal taxation (Act 2014 on Personal income tax, effective from 2015). However, the Andorrans who have had international economic interests had to bear direct taxation in other countries, such as the taxation of Non-residents in Spain and France in the concept of service delivery, fortunately limited or eliminated since the entry into force of the Double tax agreements (DTA).
In this context, and despite the efforts of Andorra to homologate its tax legislation in the economic and financial environment in Europe and in the world, it is difficult sometimes to prevent conflicts between jurisdictions in terms of tax residency. However, neighboring countries have created non-profit residencies, similar to ours, to attract foreign investors in exchange for investments in the country, something similar to the action set in place by Andorra, which requires a 400 000 € – worth investment in Andorran assets.
But one thing is a “formal residency”, or administrative residency, and another is “tax residency”. In fact, the obligation to reside at least 90 days per year for non-profit residents does not prevent residents from having the option to pay the income tax in Andorra or being considered as tax resident in another country, case in which the worldwide income would not be imposed in Andorra, even when there is a presumption of tax residency for all residents in Andorra unless evidence to the contrary.
Ultimately, under the principle of autonomy, it is the resident who will build a position, personal relations, family, their economic interests and will define how and where they will be taxed as tax resident. Andorra has put in place a legal system for immigration and taxes, but it is each resident who voluntarily decide one way or the other.
Taking as reference the laws of Spain and Andorra, we see that the two states have a similar level in terms of determining the tax residency in its territory: either to reside at least 183 days in of the calendar year, counting sporadic absences if the person does not pay taxes in another country, or when the center of activities or economic interests is in the country; in particular, people are considered tax resident if the non-separated spouse and minor children are living in the country.
Obviously, respecting the rule that binds to a particularly favorable jurisdiction, which could be the case of Andorra, involves a need for a careful follow-up of the legal criteria for a proper defense of the tax status. Indeed, when you see the news on hypothetical residents who have their tax residency contested due to residency simulation, the point of conflict is that the proof of tax residency in Andorra is not as clear as in Spain, where it is presumed that this person should have been taxed.
But the agreement to avoid double taxation with Spain (and with France) has clarified many potential conflicts in terms of tax residency in the two countries. In this case, the predominant criteria for the tax residency is the country where the person has a main residency and, if it exists in both states, the country with which the person has closest family and economic relations and interest. If it was impossible to solve the tax residency through these two criteria, the habitual residency shall prevail. If no previous criteria are clear, nationality will be taken into account. In the case of double nationality, the two countries in conflict will have to come to an agreement.
Today we have a clear enough national and international legal framework which will make easier for the respective authorities to determine whether an individual should be taxed in a country. This legal certainty is also extended to the individual, who can opt for a modus vivendi that places them in one or another form of taxation.
Facing the certainty derived from a strict and clear legal framework, the authorities do not accept the fictions, simulations, green cards without probative value and other elusive strategies in a context aimed to increase transparency and international cooperation, both fiscal and legal; our country, fortunately, is part of this new context and all these harmful practices will be unveiled and will receive the appropriate treatment.
Andorra is certainly a very attractive place to live. There are many benefits, but they are only valid for those who are ready to scrupulously respect the law”.